3Q21 results of A-share subsidiaries recorded solid growth. In 3Q21, total revenue of AviChina's A-share subsidiaries grew by 14.9% YoY mainly thanks to strong growth from Hongdu Aviation. Weighted average gross margin dropped by 1.9 ppts YoY due to rising raw material costs, but weighted average net margin slightly improved by 0.3 ppts YoY thanks to net margin improvement of all four subsidiaries.
We revise our EPS forecasts for 2021/ 2022/ 2023 by +4.2%/ +0.5%/ -2.7%, respectively. We have mainly 1) trimmed entire aircraft revenue assumptions to reflect lower-than-expected revenue growth of AVICOPTER in 3Q21, 2) cut revenue assumptions for engineering services to reflect impact from delayed construction activities, and 3) revised down assumptions for finance costs based on 3Q21 results of the Company's subsidiaries.
Trim TP to HK$6.30 and maintain "Buy". Our SOTP-based TP represents 16.0x/ 13.8x/ 12.7x 2021-2023 PE ratio and 1.6x 2021 PB ratio. Accelerated construction and modernization of weaponry was stressed again on the PLA equipment work conference, which will secure military demand for products of defense companies like AviChina during the 14th Five-Year Plan period. We cut our target price mainly due to change in mark-to-market valuation of the Company's subsidiaries.